The Tacoma School District is learning a half-billion dollars doesn’t buy what it used to.
Skyrocketing construction costs have pushed current and future projects over budget by more than 9 percent. And in a few cases, unforeseen costs and project expansion are contributing to the higher price tags.
Estimates of modernizing and restoring historic Stadium High School, the district’s largest project, recently jumped by $7.8 million, bringing the project total to $99.5 million.
Other Puget Sound-area districts, including Seattle, Peninsula, Puyallup and Bethel, also have grappled with how to handle the soaring cost of building materials.
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But adding to Tacoma’s woes is its $28.7 million overestimate of interest earnings from the $450 million bond measure that’s funding most of the construction.
Between the higher-than-expected construction costs and the lower-than-anticipated interest rates, the district faces a gap of about $59 million.
Yet Tacoma officials stress that they will complete all the major projects specified during the bond campaign.
The bulk of the difference will be covered with at least $38 million, and as much as $68 million, in state matching dollars that the district expects to get for construction projects.
“I’m not concerned whatsoever about the projects getting done,” said Kurt Miller, Tacoma School Board vice president and co-chairman of the citizens committee that campaigned for the bond proposal. “We are in great shape.”
Still, the higher construction costs will reduce the amount of money for small projects that principals request each year to upgrade playgrounds, offices or other facilities, said Pete Wall, planning and construction director.
“There’s not a part of the budget or way we do business that hasn’t been impacted by cost increases,” Wall said.
Tacoma’s 2001 bond supports construction, rebuilding, expansion or modernization of at least 15 schools over a decade, and dozens of smaller improvements at the 40-odd remaining schools.
The district first estimated costs for the projects at $503.1 million. Thanks largely to the hike in building materials, the current forecast is $537.3 million.
Most of the major projects were coming in under or close to their original budgets – unlike last year. For instance, the new Mount Tahoma High School, which opened last fall, cost $75.7 million – $2 million less than the original budget.
The district at first planned to pay for the construction projects with the $450 million bond and $53.1 million in interest earnings from bond proceeds.
In the past four years, however, interest rates plunged to historic lows. Now, the district estimates interest earnings will add up to just $24.3 million.
Tacoma administrators plan to make up the deficit with $8.8 million carried over from the district’s 1997 construction levy and up to $68 million in state matching grants. They also plan to transfer $21.1 million within the bond from small capital projects to major projects.
The bond plan did not include state matching funds as a revenue source when the construction measure was submitted to voters in 2001. At the time, district officials anticipated getting some matching dollars, but considered the state funding too unreliable to count on.
The higher construction bills aren’t expected to cost taxpayers more. While the low interest rates lessened construction revenues, they also helped produce more favorable rates for bond sales. That saves taxpayers’ money through a lower property tax rate and pay-off of the bonds in 18 years instead of 20, the district’s chief executive officer Ron Hack explained.
Construction cost inflation nationwide soared well above 10 percent in 2004, according to district figures based on the U.S. Army Corps of Engineers’ index.
The district had originally forecast that the national inflation rate of about 3 percent annually in the 1990s would hold for the duration of the decade-long building plan.
Like Tacoma, the Seattle School District passed a construction levy in February 2001, this one for $398 million.
The proposal was based on an annual inflation rate of 4 percent, but, said Seattle spokeswoman Patti Spencer, “we’re finding it’s now 10 percent in most of the recent projects we’ve bid.”
Starting in November 2003, labor costs remained steady but the price of construction materials began to climb, driven partly by demand from China.
From March 2004 to last month, for instance, the cost of lumber rose by 22 percent, reinforcing steel by 70 percent, structural steel by 44 percent and fire sprinkler pipe by 103 percent, according to price comparisons prepared by Skansa USA Building, the company that is modernizing Stadium.
Tacoma’s three projects bid last year reflect the cost spikes. For instance, Wilson High School’s modernization now has a budget of $27.5 million, a jump of 13.3 percent over the last estimate.
The district also has raised cost estimates an average of 10 percent for the six remaining major projects under the 2001 bond.
One of those projects is modernizing the old Mount Tahoma site starting in 2007 to become the home of Gray Middle School. The project was previously estimated at about $30 million. It now stands at $37.4 million – a leap of 24.3 percent.
Meanwhile, Stadium High School’s budget has grown from its original estimate of $85 million to $99.5 million.
Of that, $6.6 million reflects a bookkeeping change by the district to gain a truer cost picture of its remaining major projects. It now includes land acquisition and project management costs.
But $7.8 million of the increase is due to rising material costs, expanding some aspects of the modernization, and the higher-than-expected costs of restoring historic features in the nearly century-old building.
In some instances, costs rise as the district complies with Tacoma building inspectors and the city Landmarks Preservation Commission.
A few examples of the increases:
• The district originally hoped to replace just a portion of the school’s estimated 475 windows. But building inspectors required the replacement of all windows near entrances to improve fire safety. To avoid having windows from different eras in the building, the district will replace all of them except for a handful of originals in the attic, said project manager Stan Fillips.
Added cost: $1.5 million.
• The district would prefer to tear down or reduce the height of the school’s two chimneys. But it will seismically reinforce them at the request of the landmarks commission. Added cost: $150,000.
• Builders are finding it more costly than expected to replace and repair the 60 or so copper finials, or spires, topping the peaked roofs.
Added cost: $76,749.
School construction grows more costly
Escalating material prices are boosting budgets for Tacoma school construction projects that were bid after 2004 or that will be bid in the coming years. A small portion of the budget increases shown below stems from a district bookkeeping change to transfer land purchase and project management costs by outside consultants to individual construction projects.
Original Revised/projected Construction
Project budget budget Description start
Current projects affected by construction cost hikes
New elementary, 92nd & Alaska streets $14.4 million $17.5 million New school Under construction
Stadium High $85 million $99.5 million Modernization, restoration, expansion Under construction*
Wilson High $23.5 million $27.5 million Addition, renovation Under construction
Fern Hill Elementary $13.3 million $16 million Modernization Summer
Lincoln High $50.9 million $55.2 million Renovation, addition Summer 2006
Geiger Elementary $6.9 million $8 million Addition, renovation 2007
Gray Middle $29.7 million $37.4 million Modernization of old Mount Tahoma High site Summer 2007
Gault Middle $31.3 million $33.3 million Modernization, replacement 2008
38th Street elementary $18.5 million $18.7 million New school May 2009**
* Part of increase due to project expansion and higher than expected restoration costs.
** Plans revised to build school for 350 students instead of 550.
Source: Tacoma School District